Ontario Hydro following Enron plot

Montreal Gazette - May 10, 2002
by Lyle Steward

If you thought only a Hollywood scriptwriter would be capable of penning the political and economic disaster drama that is energy deregulation, it appears you're right. A series of internal memos released in the United States this week shows that the star of this show, Enron Corporation, employed a remarkable talent for Tinseltown fantasy to cover its gouging of California electricity consumers. And like all Hollywood blockbusters, it's only a matter of time before this scenario is imported to Canada.

One memo saved from the shredder details a technique nicknamed "Death Star," which enabled Enron to be paid for "moving energy to relieve congestion without actually moving any energy or relieving any congestion." The Death Star practice took advantage of California's desperation during 2000 and 2001 to transfer power to parts of the state suffering from rolling blackouts, or "brown-outs." Enron threatened to clog up transmission lines and was then paid to transfer power elsewhere, even though it did absolutely nothing except schedule the transmission, which, of course, never occurred. The Star Wars reference was also echoed in the titles of schemes - such as "Chewco" and "JEDI" - to hide its ill-gotten gains with off-balance -sheet projects.

Megawatt Laundering

Another strategy, named after the 1991 crime thriller Ricochet, aptly describes a practice known as megawatt laundering, which Enron used to avoid wholesale price caps on California electricity by sending electricity out of the state and then back in at prices many times higher.

The memos described other lucrative practices, such as "Get Shorty" and "Fat Boy." The Fat Boy trick involved creating fake congestion on the California grid, driving prices sky-high. The memo calls it "the oldest trick in the book."

The revelations provide a smoking gun for investigators seeking to prove that energy traders deliberately created a false energy crisis to rake in billions off the backs of California consumers and taxpayers.

The revelations are the latest in a long line of corporate malfeasance that accompanied energy deregulation in the U.S. Already well-known are Enron's use of offshore havens to avoid income taxes, hiding corporate debt from its unwitting shareholders, its rip-off of employees' retirement money, and the fortunes made by top officials who took advantage of an absolute lack of public oversight. Throughout it all, Enron greased the palms of anyone - journalists, politicians and academics - who could help.

Meanwhile, it might be turning into more of a tragi-comedy. Newly minted Ontario Premier Ernie Eves is still talking about bringing "market discipline" to Ontario Hydro, now renamed as Hydro One. Market discipline, as the Enron experience shows, is a license to print money at the expense of the public interest.

Ontario's transmission grid was deregulated May 1, but the plan to privatize Hydro One was halted by a successful Ontario Superior Court challenge last month. Justice Arthur Gans ruled that provincial law gave the government no authority to sell Hydro One.

Income Trust

Ontario is appealing while it amends provincial law and prepares alternative privatization scenarios. One is described as an "income trust," which critics say will privatize Hydro One's profits while keeping its multi-billion-dollar debt as a public responsibility. It's another sterling example of market discipline, no doubt, and one that faithfully follows the Enron plotline.

The scheme is reminiscent of Ralph Klein's free-market paradise in Alberta, where in a pre-election boondoggle last year taxpayers paid themselves $2 billion to compensate for newly privatized electricity price-gouging.

Stories like these make me thankful to be a Quebecer, where support for privatization of Hydro-Quebec is somewhere between nil and negligible. Despite the crown utility's past arrogance and megalomania, it still must respond to public pressure and expectations. Electricity is both a social good and a development tool. It's not a widget like any other that can be endlessly reinvented for market advantage.

Energy deregulation and the privatization of public utilities might be popular among market ideologues and those who stand to make a quick, unearned buck charging up their light sabres. But as public policy, it's best left on the cutting-room floor.